Sramana: I think that part of Adobe’s strategy is to target the VP of marketing. They still have a large creative professional suite. They are in a bit of a fix with Flash. The company that has the most to gain by getting into a space like this is a company like Adobe. If I were Adobe, I would acquire you.

Michael Mullany: We are growing nicely by ourselves.

Sramana: If you are a VC-funded company, you are either going to be acquired or you are going to go public. You have to be looking at those possibilities, but that is beside the point. The goal of this discussion is to examine how people who are good at strategy think through these market moves.

Michael Mullany: We have to take it one step at a time as well. We believe that we need to get a great developer experience together, and then provide tangential and related products. We have a strategy called Sencha IO, which is about providing back-end, secure mobile services to back-end business developers. We think that is the natural next step for us to provide to our developer ecosystem. We launched that in beta last year, and we hope to have it as a generally available product in the next six months.

From a strategic perspective, we always examine what our developers need. We are looking for the natural follow-on to what we provide our developers today. I think in any open source or freemium company you look at what products and services you can provide at a low marketing and sales cost. We build the product such that they sell themselves. We have a very small sales force and a very small outbound marketing team. One of the things we do is examine our capabilities and assets and leverage from there.

Sramana: Let’s spend some time on the freemium and open source models. Do you see a 2% to 4% conversion rate between freemium to paid?

Michael Mullany: In the industry it is anywhere from 0.5% to 10% conversion rate. We are in the industry average.

Sramana: What drives conversion in your business?

Michael Mullany: The application needs to be an important application that needs to be converted to premium to support deployment. People will buy a commercial license of a framework for that application. When a group gets serious about Sencha, they will standardize on our frameworks, and that is when we see them begin to purchase other tools and technical support.

Sramana: One of the big problems I see for the future of the Internet are people’s expectations that they should be able to use value for free. Capitalism is not sustainable unless you are paying for the value you consume.

Michael Mullany: The economics of information technology is a long discussion. I think one of the reasons why we have so few packages software companies and so many SaaS companies is not because of the benefits of SaaS alone, but also because most SaaS services are built with open source technologies. If they were packaged software, then the source code would have to be disclosed to the end users. There is a lot of software that has been developed on the back of open source projects that has been buried behind a SaaS interface. That has been one of the big drivers of open source and SaaS dynamics over the past decade.

Sramana: Do you have any way of knowing when somebody is using your product in a SaaS commercially deployed model?

Michael Mullany: Sometimes they will change the libraries and names, so it is hard to scan. Often, however, we will see it. We are unique because we are a front-end technology and we can see what people use in our browsers. Others in our space are not so lucky. Their software us used on the back end, and that makes it very difficult for them to know who is using the product.

Sramana: I think this is a very nice story and I really enjoyed our discussion. Best of luck as you go forward.

This segment is part 7 in the series : Scaling a Platform for Device-Agnostic Web Interfaces: Michael Mullany, CEO of Sencha1234567